Retirees and their dependents who track the annual cost-of-living adjustments for civil servants, military and Social Security retirees are often confused by the process. If the food they buy, the gasoline they burn and the medicine they need keep getting more expensive, it stands to reason that they should get a January COLA that would help them keep pace with inflation. But tracking the COLA isn’t as easy as it might appear.
Watching the monthly rise and fall in the Consumer Price Index for Urban Wage Earners And Clerical Workers (CPI-W) doesn’t guarantee you will be able to predict the upcoming year’s COLA. Especially this year. For example:
The civil service-military-Social Security retiree COLA folks got in January 2017 was a mere 0.3 percent. Better than a sharp stick in the eye, but just barely. It didn’t do much to the higher health insurance premiums that kicked in this year.
Tracking the CPI-W data for this year, it indicated that retirees were in line for a 2018 COLA of 1.6 percent. Many were predicting that before the countdown ended (Sept. 30), the COLA would be at least 2 percent. Others reported it could hit 2.2 percent. But that is getting waaaaaay ahead of the process. How do we know?
Because in July of this year (most recent month available), the CPI-W actually decreased 0.08 percent. That downturn for COLA trackers put the January 2018 raise as a possible 1.52 percent. But as complicated as that is, unless you work for the Bureau of Labor Statistics, that oversimplifies things.
Retirees didn’t get a COLA in 2016 — a repeat of 2010 and 2011. For the 2017 COLA, that meant we had to look back all the way to the 2014 CPI-W. But with a small 0.3 percent COLA this year, we’re back to business as usual.
That means COLAs are based on the rise in the CPI-W from the third quarter of the current year (July, August, September 2017) over the third quarter of the previous year (July, August, September 2016). Or, as the National Active and Retired Federal Employees Association (NARFE) explains it this month, “the new CPI-W figure for July 2017 was 238.617, 1.52 percent higher than the average CPI-W for the third quarter of 2016, which will be used to determine the 2018 COLA, and was 235.057 (1982-844=100).” Got that? If not, you’re not alone. The COLA process, which was setup by Congress years ago. continues to confuse lots of otherwise smart people who study it.
Got that? If not, you’re not alone. The COLA process, which was set up by Congress years ago, continues to confuse lots of otherwise smart people who study it.
NARFE and other groups believe that the CPI-W isn’t the best way to gauge inflation’s impact on retirees. It measures consumer goods, food, housing, transportation, medical care, recreation, education and communication costs (like your phone and cable bills). But what it doesn’t do, NARFE says, is measure accurately the impact of inflation on older people. Like retirees. It is pushing for a change that would base future COLAs on the CPI-E (as in elderly), which it says would better measure actual livings costs for older people.
All of the groups representing federal workers, managers, professionals, executives and retirees oppose any effort to switch to another CPI calculator, which over time would dramatically cut into COLAs for all retirees. They are also opposing various budget proposals to make FERS workers pay much more — a 6 percent rise in six years — for their retirement benefits. That would reduce both their take-home pay while working and their retirement annuities. Another plan would reduce COLAs (based on the CPI-W) for CSRS workers by 0.5 percent each year and totally eliminate any COLAs for workers and retirees under the FERS program.
Whatever happens, or not, to those cut-the-benefits proposals, figuring out the January 2018 COLA is not easy.